Mortgage lending increased in Q3, with the number of high-LTV and high-LTV loans rising after the regulator eased affordability requirements this year.
The Mortgage Lenders and Administrators Return (MLAR) from the Bank of England is a quarterly statistical release aggregated from data on mortgage lending activities provided by around 340 regulated mortgage lenders and administrators.
Its latest figures for Q3 show that gross mortgage lending increased by 36.9% from the previous quarter to £80.4 billion, the largest increase in new advances since Q3 2020, and was 22.7% higher than a year earlier.
The period benefited from regulatory changes including clarification of stress rate rules by the FCA and relaxation of the LTI flow limit by the PRA earlier this year.
As a result, the share of gross mortgage advances with LTV ratios exceeding 90% increased by 0.3 percentage points from the previous quarter to 7.4%, the highest share since 2008.
The proportion of lending to borrowers with a high loan-to-income (LTI) ratio also increased by 3.3pp from the previous quarter to 44.7%, the largest increase since Q3 2020, but remained 0.6pp lower than a year earlier.
Broken down by mortgage type, the share of gross advances for residential house purchase increased by 2.5pp from the previous quarter to 58.6%, but remained 5.8pp lower than a year earlier.
Conversely, residential mortgage advances decreased by 0.4pp from Q2 to 28.6%, but remained 5.8pp higher than a year earlier.
The share of gross mortgage advances for buy-to-let purposes (covering house purchase, remortgage and further advance) fell by 1.0pp from the previous quarter to 8.2%, the largest decrease since Q3 2024, but remained 0.2pp higher than last year.
Positively, arrears figures have continued to fall throughout the year.
The value of outstanding mortgage balances with arrears decreased by 2.9% from the previous quarter to £20.6 billion, and was 5.8% lower than a year earlier.
The proportion of total outstanding balances with arrears that are new arrears cases decreased by 0.1pp from the previous quarter to 8.8%, the lowest since Q1 2022, and was 0.9pp lower than a year earlier.
Richard Pike, chief sales and marketing officer at Phoebus Software, said: “These figures demonstrate the mortgage market was in rude health over the summer, with overall lending up for the seventh consecutive quarter. Gross advances saw the largest quarterly increase for five years as borrowers took advantage of falling rates following the Bank of England’s base rate cut in August. New mortgage commitments were also at their highest since Q3 2020, showing a strong pipeline for lenders for the rest of the year.
“Just under half of this lending (44.7%) was to borrowers with high loan-to-income ratio as mortgage companies offer more low deposit products. This is opening the possibility of home ownership to more people and stimulating market activity but comes with higher risk. The fact that arrears rates are continuing to fall suggests that lenders are getting the balance right here, and demonstrates the resilience of households in the face of cost-of-living pressures.
“It will be interesting to see next quarter’s figures when we’ll see how the uncertainty leading up to the Budget affected borrower behaviour.”
Ian Futcher, financial planner at Quilter, commented: "Mortgage lending has picked up meaningfully in the latest figures, but it’s important to remember this comes after a very slow year in the housing market. High interest rates and affordability pressures kept many would-be buyers on the sidelines.
"Gross mortgage advances jumped by almost 37% compared to the previous quarter and are now nearly a quarter higher than a year ago, while new mortgage commitments reached their highest level since late 2022. That suggests growing confidence as mortgage rates inch down and people begin to move forward with plans they may have paused.
"Even so, the data shows how tough it remains for those trying to buy. Lending at over 90% loan-to-value has risen to its highest share since before the financial crisis, and a rising proportion of borrowers are stretching their incomes further to secure a home. This reflects the reality of high house prices and the lingering impact of elevated borrowing costs.
"There is some reassuring news, with mortgage arrears still very low and falling versus last year, indicating that households who already have mortgages are largely managing repayments despite the squeeze.
"Overall, the market is improving from a weak base, but affordability challenges remain front and centre, particularly for first-time buyers. Continued reductions in mortgage rates will be key to ensuring this recovery is sustainable rather than reliant on people taking on greater financial strain."
